The value of foresight in the drybulk freight market

Vit Prochazka, Roar Adland () and Stein Wallace
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Roar Adland: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH Department of Business and Management ScienceHelleveien 30N-5045 BergenNorway

No 2018/1, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We analyze the value of foresight in the drybulk freight market when repositioning a vessel through space and time. In order to do that, we apply an optimization model on a network with dynamic regional freight rate differences and stochastic travel times. We evaluate the value of the geographical switching option for three cases: the upper bound based on having perfect foresight, the lower bound based on a "coin flip", and the case of perfect foresight but only for a limited horizon. By combining a neural network with optimization, we can assess the impact of varying foresight horizon on economic performance. In a simple but realistic two-region case, we show empirically that the upper bound for large vessels can be as high as 25% cumulative outperformance, and that a significant portion of this theoretical value can be captured with limited foresight of several weeks. Our research sheds light on the important issue of spatial efficiency in global ocean freight markets and provides a benchmark for the value of investing in predictive analysis.

Keywords: Dry bulk market; dynamic programming; neural network; foresight (search for similar items in EconPapers)
JEL-codes: C44 C60 C61 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2018-01-31
New Economics Papers: this item is included in nep-cmp
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http://hdl.handle.net/11250/2482578 Full text (application/pdf)

Related works:
Journal Article: The value of foresight in the drybulk freight market (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhhfms:2018_001

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